If analysts’ projections hold true, behind-the-meter energy storage applications in general—and residential applications in particular—are poised for dramatic growth over the next 3 to 4 years.
Does this mean that stored energy costs are approaching the retail price of electricity?

In “US Energy Storage Monitor: 2015 Year in Review” (see Resources), GTM Research forecasts that the US annual energy storage market will reach 1.7 GW by 2020, a 26-fold increase from 2014. The projected growth by market sector is of particular interest to solar installers. According to data that GTM Research and the Energy Storage Association gathered for the report, customer-sited behind-the-meter energy storage deployments accounted for roughly 11% of the total market in 2014 and 16% in 2015, with utility deployments comprising the vast majority of installed energy storage capacity. However, GTM Research expects that by 2019 the energy storage deployed behind the meter in nonresidential and residential applications will eclipse the utility segment.

In this article, we consider some of the use cases and emerging markets for residential grid-interactive energy storage systems. We then present a simplified levelized cost of stored energy (LCOS) metric, useful for analyzing the economics in residential energy storage applications. In addition to exploring the sensitivity of LCOS in relation to various parameters, we consider the practical limitations of this metric. Throughout the article, we consider some of the ways in which the emerging energy storage market parallels the early days of the solar industry, and what this may tell us about its path forward.

Market and Applications

The projected growth of the residential energy storage market presents a tremendous opportunity for solar installation companies. After all, interconnecting a battery-in-a-box type of appliance is not all that different from making the grid connection for an interactive PV system. Further, adding solar to an energy storage system can improve the overall value proposition, both by leveraging tax credits and by adding another battery charging source. Finally, solar companies can offer energy storage as a retrofit solution to existing customers or as an optional upgrade to new customers, which are compelling ways to drive down customer acquisition costs and increase sales revenue.

The challenge, of course, is that the energy storage market has made less progress along the classic technology adoption and hype cycle curves, shown in Figure 1, than solar has. The California residential grid-tie solar market, for example, progressed from innovative pilot projects in the 1990s to a classic early adopter market at the beginning of the 2000s, when customer concerns about the environment or self-sufficiency drove sales more than economic self-interest. Now that residential solar has reached grid parity in California, the technology appeals more broadly to economic pragmatists, which is characteristic of an early majority market. While solar market maturity varies from state to state, GTM Research’s latest in its series of US solar market reports (see Resources) estimates that solar has reached grid parity in 19 states plus the District of Columbia, meaning that the levelized cost of energy for PV is equal to or lower than the retail price of electricity in these markets—after accounting for incentives and tax credits.

By comparison, these are very early days for the residential energy storage market in the US. The authors of the Rocky Mountain Institute (RMI) report “The Economics of Grid Defection” (see Resources) estimate that residential solar-plus-storage has the potential to achieve grid parity in Hawaii today under certain scenarios that assume improvements in demand-side load management and battery cost reductions. Under a more realistic base case scenario, the authors project the following: “Residential [solar-plus-battery] systems will reach grid parity as early as the early 2020s in Hawaii, late 2030s in Los Angeles, and late 2040s in [Westchester, New York].”

While Tesla succeeded in creating a lot of buzz about energy storage with its Powerwall announcements, it is reasonable to wonder whether current technology and business cases can meet customer expectations. If not, energy storage likely still has a hill to climb before it overcomes its own hype, as represented by the slope leading to the Peak of Inflated Expectation in Figure 1. By comparison, the leading solar markets in the US are more developed, advancing perhaps along the Slope of Enlightenment.

Part of the challenge facing residential energy storage in the US is that its use cases or applications are limited compared to those of maturing energy storage markets elsewhere in the world or even of domestic commercial deployments. The authors of a more recent RMI report, “The Economics of Battery Energy Storage” (see Resources), identify four customer services for behind-the-meter energy storage: backup power, increased PV self-consumption, time-of-use bill management and demand reduction. To put these applications in context, let us briefly review the goals and ideal economic environment for each scenario.